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Italian Banks: H1 2021 Results Supported by Revenue Rebound and LLP Reduction

The commentary analyses H1 2021 results for the five major Italian banks: UniCredit, Intesa Sanpaolo, Banco BPM, Banca MPS and BPER. In DBRS Morningstar’s view, H1 2021 results show good recovery in revenue generation and lower loan loss provisions (LLPs), in comparison with H1 2020 which incorporated the fallout of the pandemic, restructuring costs and asset impairments.

Summary highlights from the commentary include:

• Italian banks reported an aggregate net profit of EUR 3 billion in Q2 2021, up from EUR 1 billion in Q2 2020. For H1 2021, the net profit was around EUR 6 billion, which compares with a net loss of EUR 594 million in H1 2020.
• The recovery in revenue generation, which started in the second half of 2020, has gained momentum with the rebound of economic activity following the progress of the COVID-19 vaccination rollout coupled with support measures, but also driven by M&A transactions involving Intesa and BPER.
• LLPs were down significantly both YoY and from the peak in Q4 2020, but up QoQ, as banks maintained a prudent approach on future asset quality risks. Most banks revised downwards their cost of risk guidance for FY 2021 to around 60-70 bps on average, reflecting the prudent provisioning registered in 2020 and the improvement of future economic prospects.
• Deterioration from expired moratoria remains manageable for the time being and offset by the banks’ continued effort in the reduction of legacy NPEs. Outstanding moratoria at large banks accounted for 3.2% of gross loans at end-June 2021, down from 9.4% in Q3 2020.

“Whilst we expect default rates to increase throughout 2021 and in 2022 as support measures are removed, the negative impact on asset quality appears at this stage less severe than previously anticipated following the significant reduction in the stock of loans under moratoria” said Andrea Costanzo, Assistant Vice President from the DBRS Morningstar Global Financial Institutions team.